investment requirements  

With revenu properties or 'plex's' (5 properties or more) having increased in value by 5-6% since 2008 and with rents being held under control by the Goverment 'Regie du Logement' in the neighbourhood of 1-2% per annum, it is only natural to conclude that rental properties are gradually going to become less and less interesting to purchase on a the basis of their CAP rates.

Well recent calculations have shown that this time has come.

Enter the condo. The much maligned little sibling of the revenue property. Specifically in the Downtown market, the condo has increased in value between 1% and 3% over the past 10  years. Not an amazing return on investment I hear you say, but the market has changed in Downtown Montreal. With two consecutive 20% increases in annual sales, 2018 is the first in many years to begin as a balanced market (2016 and 2017 were still buyers markets), which means that price increases are likely to be stronger over the next few years.

More interesting though is our recent income comparaison between the plexes and Downtown Condos. There are good ones and bad ones in both fields, but the rapid increase in prices for the 'plexes' has eroded their CAP rates because rental income couldn't keep up (it being held back by the Regie du Logement).

The Downtown Montreal rental market is  less static and rental prices are allowed to fluctuate more. This isn't because the law is different but because the city attracts wealthy people, often from other parts of Canada or overseas who aren't really interested in a fight with their landlords to force them to bring the price down for a property they can afford anyway. Usually they negotiate a bit and and just carry on... They also stay for much shorter periods (1-3 years usually), unlike those tenants who have been in the same home for 15 years and are paying a pittance and don't want to move because they would not be able to find any other rent as low as what they are paying, so the rules encourage the tenants to stay and the market loses fluidity.

But not Downtown... The fluid nature of the market has allowed the average rent in the city to go up around 15-20% in a year and holding very steady with a clear shortage of smaller one bedroom and studio units. Even demand for 2 bedroom units has increased substantially. This is an effect of the dynamic economic conditions in Montreal with record low unemployment, massive inward investment in buisiness and infrastructure. The whole place will look very different by 2022.

With rents going up based on the underlying strength of the Montreal economy, there is no reason to believe that this will stop anytime soon.

Why is this important?

With condo prices having remained much steadier than the 'plexes' our calculations have revealed that they are now struggling to generate CAP rates of 4-5% which is fairly similar to what downtown condos are now yeilding.

The trick is that just like with the Plexes, this isn't just a matter of heading to Montreal and buying anything. There are some buidings that have a good CAP rate and others not so much.

Our job is to point you in the right direction and find those buildings which represent the best ROI (return on investment).


Yes, the return on investmen can be improved drastically by investing less of your money and by taking a morgage using standard leveraging practices.

Essentially a good CAP rate means that you get good cash flow, but only if you buy the property outright (cash) with no mortgage.

A good ROI may not offer a good cash return. The objective would be to break even. But over a 5 year period, allowing for mortgage repayments and with a very conservatige growth prediction of 1% per annum, we are finding that condos are yielding between 10% and 15% per year on average.

What does that imply?

Interestingly, if you have $300,000 in cash and ready to invest, it is better to purchase three  condos worth $300,000 with a down payment of $100,000 each and finance the rest with a mortgage rather than buy just one condo without a mortgage. You will get less cash from them on a monthly basis but five years down the road you should own $450,000 in equity in those units from an original investment of $300,000 (so $150,000 in growth) whereas in the scenario where you buy outright, even with a higher cash return, your total ROI would be around $50,000.

So what now?

Because we work with rentals as well as sales, we are very 'au fait' with market values for both. The best way to begin is to send us an email with the amount you would like to invest which could be the amount you want to pay for a property if you want good cashflow, or it could be the sums you want to invest in Real Estate as a whole regardless of how many properties you by and we can calculate what is the optimal way to get the best ROI for you.

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A CAP rate or Capitalization rate is the net income of an asset divided by its market value.

So if a property is worth $300,000 and its rent is $1,700/mo (or $20,400 per year)  and its taxes are $3,000 per year and condo (strata) fees are $2,500 per year its net income is ($20,400 - $3,000 - $2,500) $14,900 which once divded by its market value of $300,000 is 4.9% (you have to multiply the amount by 100 to get the percentile if the device you use doesn't do it automatically.
Allow us to evaluate your optimal real estate investment plan based on the amount you want to invest

The ROI or return on investment is a calculation that is usually a long term projection rather than a snapshot of the present like the CAP rate.

The return on investment of a property can be calculated in all sorts of ways but it is supposed to be the total amount of profit over a period of time relative to the amount you have invested. The Return on Investment will be much greater these days if a mortgage is used to purchase the property. The amount invested is smaller but since the tenant effectively pays for everything, the return on investment is effectively the capital gains (the increase in the market value of the asset) plus the gain in equity (the amount paid off the mortgage over the period of time)
In such cases, cash flow can be poor, maybe even sometimes negative but over a period of 5 years, we have seen ROI returns of up to 80% on Downtown Condos.


Alex Kay
Real Estate Brokers  .  Courtiers Immobilier
Downtown Realty Team  -  Equipe Immobilier Centre Ville
REMAX Action inc. Westmount

Bur: (514) 364.3222   Fax : (514) 364.0743

8280 Boul. Champlain, LaSalle, H8P1B5